Incident: The company released 23H1 results, achieving revenue of 1.24 billion yuan, a year-on-year decrease of 40.45%, net profit of 53 million yuan, a decrease of 90.8%, net loss of 49 million yuan after deducting non-return net loss of 49 million yuan, from profit to loss. 23Q2 achieved revenue of 537 million yuan, a year-on-year decrease of 37.88%, net loss of 48 million yuan from profit to loss, net loss of 100 million yuan after deducting non-attributable net loss of 100 million yuan, from profit to loss.
Comment:
Affected by the downturn in the natural diamond industry, omni-channel sales were under pressure and gross margin declined. Looking at each channel, 23H1 online self-operation/offline direct management/offline joint venture achieved revenue of 1.2/1.2/100 million yuan respectively, a year-on-year decrease of 44%/39%/37%, a year-on-year decrease of 44%/39%/37%, and a gross profit margin of 67.21%/69.76%/67.76%, a year-on-year decrease of 1.85/2.14/2.82PCT. Other business revenue was $2.1 million, a 93% decrease, a gross profit margin of 39.25%, and an increase of 34.42 PCT, mainly due to a decrease in the disposal of products expected to be processed.
There are 12 23H1 Jingwan stores. After experiencing accelerated opening in 2022, they faced channel adjustments in 2023.
23Q1/Q2 cleared 1 house/11 stores, respectively. As of 2023.6.30, the company has a total of 676 self-operated stores. In terms of store distribution, Paris and Hong Kong each have 1 overseas. Domestic stores are mainly in third-tier cities and above. There are 435 stores in Tier 1 and 2 cities, accounting for 64.5%, and 239 stores in third-tier cities and below, accounting for 35.5%.
Affected by industry fluctuations and diversion caused by many new stores opened last year, store efficiency is under pressure. 23H1 Company's directly-managed store revenue was 1,617,000 yuan, down 56.41%, single store gross profit was 1.127 million yuan, same decrease of 57.71%, single store floor efficiency was 17,300 yuan, same decrease of 57.69%; single store revenue was 1,7755 million yuan, same drop of 51.56%, and gross profit of 1.203 million yuan, same drop of 53.5%, and single store floor efficiency of 24,900 yuan, same drop of 51.75%.
23H1 sales/management/R&D expense ratio was 55.86%/6.17%/1.16%, up 23.88/2.54/0.72 PCT over the same period last year. The company's sales expenses accounted for 87.03% of the period's expenses. The 4.01% year-on-year increase in sales expenses was mainly due to the drastic expansion of store size, which led to an increase in rigid expenses such as store rent and personnel costs. In addition, 23H1 accrued asset impairment losses of 55 million yuan to stores showing signs of impairment.
Profit forecast: The company's main business is diamond products. Due to objective factors such as the rapid expansion of stores and the decline in industry sentiment in 2022, 23H1 performance is under pressure. We expect the company's channels to continue to be adjusted this year, and the 24-25 performance is expected to gradually stabilize. We expect the 2023-2025 EPS to be 0.8/0.81/1 yuan, respectively, corresponding to PE 42/41/33X, and downgraded to the “increase in holdings” rating.
Risk factors: The risk of asset impairment due to declining prosperity in the natural diamond industry and pressure on store operations.